Judy Asks: Is the EU Too Lax on Corruption?

Heather A. ConleySenior vice president for Europe, Eurasia, and the Arctic; and Director of the Europe Program at the Center for Strategic & International Studies

It is not a question of being lax; it is a fundamental lack of understanding of the nature of the threat that corruption poses. For the West, the level of corruption has now reached a point where it is an existential threat to the democratic integrity and national security of EU member states as well as the unity of the EU itself.

Urgent policy responses are required. The United States is waking up much too late to what corruption, shell corporations, tax evasion, and illicit financing can do to the integrity of democratic elections and institutions. Europe must now confront the prevalence of illicit financing coursing through its financial institutions in a way that is designed to evade detection and amplify malign influence. These ill-gained funds can be used to finance anti-EU political parties and anti-EU referenda while preventing efforts by governments to increase transparency and institutional reform.

Given the stakes, the EU must redesign its entire strategy to prioritize exposing and prosecuting corruption as well as ensuring its institutions and its funds cannot be corrupted. Transparent, multi-source bids for state procurement projects would be a welcome first step. Prioritizing EU-U.S. financial intelligence cooperation and supporting independent investigations of complex, cross-border EU corruption cases are also essential measures, as is the financial support and protection of independent and investigative journalism as a bulwark against corruption.

All these steps would increase public support and trust in democratic institutions, but without reform and transparency, European citizens may come to the conclusion that democracies are no different than other corrupt and anti-democratic regimes.

Martin EhlChief analyst at Hospodarske noviny, a Czech daily

The fight against corruption is a double-edged sword. On the one side, you must fight it because corruption is a cancer of post-communist societies, used by its enemies—including organized crime groups and the Kremlin—to undermine democratic development.

But there is another side: in its extreme form, the anticorruption fight can paralyze the function of the state. Take the example of public tenders, where the only criteria is the lowest price or the police and state prosecutors chasing everybody, thus creating fear by public officials to make important decisions.

The Czech Republic is example of both: corruption is connected with EU funds; and the overreaction of prosecutors is leading to a crisis of the political system, helping populists come to power (although that’s not the only reason, of course, for their appeal).

The EU is too lax in both. It has allowed the misuse of funds from Brussels, pretending to believe in the power of national authorities. Rhetorically it supports the anticorruption fight and helps to create pressure on politicians and national authorities, which is then misused.

And I would also put partial blame on the EU. It has allowed cases like Danske Bank, which is simply channeling money into the EU for corrupt purposes. Small countries like Estonia or Latvia cannot cope with such regulatory challenge and need EU help.

To put it simply, the EU has underestimated the power of corruption as a political factor.

Péter KrekóExecutive director of Political Capital, Hungary

According to international rankings, EU countries are among the least corrupt nations—so we cannot say that European countries are particularly corrupt. But corruption is and will remain a permanent problem both within the EU and its member states. The problem is that the EU seems to be moderately committed to fighting corruption—there are no real institutional mechanisms in place for monitoring corruption within the EU and standing up against it.

Corruption cases have led to serious material and political consequences in Bulgaria and Romania, where EU funds were temporarily frozen, but such examples tend to be the exception rather than the rule. There should be more efficient mechanisms to tackle corruption, especially in cases where the authorities are reluctant to investigate serious and systemic corruption cases (for example, in Hungary); where there are multiple member states involved (as with the Danske Bank scandal); and when there is EU money involved. Corruption should receive higher priority during EU budget talks as well.

The OLAF investigations in Hungary recently proved that this body has the capacity and knowledge to investigate serious cases. By failing to do so, corruption—which, according to some estimates, can cost taxpayers €990 billion a year—is raising public dissatisfaction with the EU, undermining solidarity among member states, and threatening the existence of the union itself.

Denis MacShaneFormer UK minister for Europe

Yes. EU funds for farmers, regions, and other areas have always been open to fiddling. But the situation has now got beyond the acceptable. An utterly unreformed Greece was allowed to join the EU, which provided a constant stream of money that Greek politicians (of all parties) used to buy votes via the diaploki networks. This worsened after 2000, when cheap euros flooded into Greece—only to be diverted for political purposes.

The układ back-scratching system in Poland also diverted EU funds, while in southern Italy, Slovakia, Bulgaria, and Romania it is now leading to serious criminality, including the murder of journalists who investigate the corrupt use of EU money.

When the Marshall Plan poured billions into Europe after 1948, there were Marshall Planners sitting in every ministry to ensure that the funds went to genuine projects to rebuild the economy in different countries. The EU needs to ensure much more oversight on the spot of how its moneys are spent. OLAF is far too weak. MEPs who refuse to be transparent about their own expenses, as the criminal investigation into Front National MEP aides shows, are also part of the problem. The next team of EU leaders in charge should be ruthless in cleaning up how EU (that is, taxpayers’) money is spent.

Alina Mungiu-PippidiDirector of the European Research Centre for Anti-Corruption and State-building and professor of Democracy Studies at the Hertie School of Governance in Berlin

Unfortunately the double standards in Europe where corruption is concerned have reached such historic proportions that the question is whether doing more is actually more harmful than doing less.

While Greek Prime Minister Alexis Tsipras handpicks top judges and lets anti-corruption prosecutors go, nobody says anything. Instead, all the attention is on Poland. The Danish tax authority is swindled by $2 billion, and the thieves are protected by Luxembourg law firms. A former Reuters journalist was just convicted in France for saying that mayors profit from conflict of interest, while the French government is upset that Romanians are rolling back anti-corruption laws that would never have been adopted in France in the first place.

Eastern Europe’s new member states privatized most of their utilities to Western European companies. When the top U.S. Foreign Corrupt Practice Act points to bribing abroad nothing can be done, because—as the ethics committee set up to investigate Mr. Barroso’s Goldman Sachs job declared—we do not know what integrity is (and is not), since the European Court of Justice had no ruling on this matter.

Marc PieriniVisiting scholar at Carnegie Europe

The brutal murders of investigative journalists Daphne Caruana Galizia in Malta a year ago, Jan Kuciak in Slovakia last February, and Viktoria Marinova in Bulgaria last week have drawn worldwide attention on the risks associated to investigating corruption and the use of public funds.

Beyond political condemnations by the European Parliament and national governments across Europe, these murders bring a new responsibility for the EU’s executive institutions, especially the European Commission.

The so-called EU structural and investment funds (the five funds dealing with regional, social, cohesion, agriculture, and maritime/fisheries programs and projects) are so big in relation to the GDP of the eligible countries that, inevitably, they create huge appetite and fierce competition. In themselves, they are the turf of political battles, which in some cases have tragically and inexcusably turned bloody.

Calling for transparent enquiries, swift results, and severe condemnations is no longer enough. Even though EU funds may not be at the center of each and every corruption investigation, their sheer size bestows a special responsibility on the European Commission’s team managing these funds and the bodies controlling their use within the Commission (OLAF) and in the European Parliament (the Budgetary Control Committee).

Making sure that all the political echelons in the EU countries involved in EU structural funds are aware that they are under constant scrutiny and that transparency must now be norm, not the exception. All institutions concerned must show exemplary behavior when it comes to transparency. Failing to enforce such ethical rules will only provide fodder to anti-EU sentiments across Europe.

Stephen SzaboAdjunct professor at the Johns Hopkins Bologna Institute for Policy Research

Corruption, along with immigration, has become the most important issue facing the EU in terms of both internal security and the rule of law. The distribution of EU structural funds can be a more effective lever of dealing with these challenges than other measures that the European Commission has used in the case of Poland, Hungary, and other sliding democracies. It is more credible than the threat of suspending voting rights.

The recent proposal by the European Commission to cut structural funding to both Hungary and Poland in the 2021-27 period by more than 20 percent and to redirect the funds to southern EU states is a step in the right direction. The EU’s anti-fraud unit is also stepping up its inquiries into how this money is spent. It is clear that governments in a number of EU states, most notably Hungary, have used these funds to reward their supporters and to maintain support for illiberal governments while using anti-EU rhetoric. This is a clear case of having your torte and eating it. Let’s hope the new European Commission will be even tougher in linking financial conditionality to the rule of law and open societies.

Zsuzanna SzelényiFormer member of the Hungarian National Assembly

Western European companies profited heavily from the opening of the Central European market as a result of EU enlargement; this might be one reason why their home countries did not feel the urgency to better regulate and control the spending of EU structural and agricultural funds. Such complacency, however, is almost incomprehensible: free money is always a moral hazard.

Without having serious control mechanisms, EU funds have contributed to the development of a corrupt elite and have encouraged rent-seeking behavior. This is an important reason behind why EU funds have failed to achieve their major aim—to modernize the economies of Central Europe—even if the moneys contributed to the economic growth of the region simply by their sheer volume.

All these facts have created serious social-political tensions in these countries. Moreover, in the case of Hungary, uncontrolled EU funding has been serving the endurance of the one-party illiberal government, which now openly questions the EU’s basic working model: pluralist liberal democracy. This poses a threat for Hungary and Europe alike.

Corruption is nurtured by EU funds flowing without reasonable controls, which signals the misfunctioning of the European Union. This is going to be more difficult to restore every day.

Does the EU have the appropriate instruments and enough political will to address corruption?

While OLAF, the EU’s anti-fraud watchdog, can independently investigate fraud and corruption, its findings are reported to member states, some of which tolerate corruption. Corruption is not circumscribed to one EU country, but its cultural and political acceptance and its permeability vary: in some places it begins at one’s doorstep, in others if engulfs high-level politicians and their business clientele. If there is no political will to prosecute corruption at the local level, and the EU lacks independent instruments to punish the actors, then OLAF can only name and shame the perpetrators—which is rarely done—hoping that local organizations and citizen take the initiative and demand action.

How many citizens know about OLAF or where they can safely report local fraud and corruption? How many citizens know which practices constitute corruption? How many perceive that corruption leads to prosecution and punishment?

This is not an easy task: three journalists have been killed in the EU in one year for investigating corruption. High-profile media investigations on corruption, reported through international cooperation, rarely remain in the headlines of mainstream media—especially in Eastern Europe, where such reports tend to be relegated to specialized web portals with limited readership.

Yet, empowering citizens to act and increasing the EU capacity to react may be the first sign that corruption will not be tolerated.

Ivan VejvodaPermanent fellow at the Institute for Human Sciences

The EU is too lax over corruption and should be doing much more to address it. Corruption is a social evil, and no EU member state is immune. This evil bridges with ease Europe’s North-South and East-West divides. It knows no borders, nor cares for national differences.

In a world of McMafia, of global organized crime, the tools used to combat it are often at a local, national level—international cooperation is certainly catching up, but not at the pace required.

After almost a decade in the job, the outgoing director of Europol Rob Wainwright this April said, “professional money launderers—and we [at Europol] have identified 400 at the top, top level in Europe — are running billions of illegal drug and other criminal profits through the banking system with a 99 percent success rate.” He added: “The banks are spending $20 billion a year to run the compliance regime … and we are seizing 1 percent of criminal assets every year in Europe.”

The misuse and abuse of EU taxpayers’ money, mainly in the form of structural funds, is the other key facet of corruption and fraud.

European public institutions—including OLAF and the Council of Europe’s Group of States against Corruption (GRECO)—and NGOs—such as the Organized Crime & Corruption Reporting Project (OCCRP)—that helped uncover the Panama Papers are certainly doing their utmost, but so much more needs to be done in a concerted, cross-border, full information-sharing mode.

Daphne Caruana Galizia, Victoria Marinova, Jan Kuciak (and his partner Martina Kusnirova) were EU citizens, investigative journalists—and killed while working for the public good to uncover massive corruption schemes. Their deaths are a tragic, horrendous reminder of the unbridled evil still out there.

An important debate and most commentators rightly point out that this issue cuts across the North-South and East-West divides in Europe. The New Conservative party of Latvia won second place in last Saturday's parliamentary elections on a strong Rule of Law and anti corruption programne, with 2 party members previously working at Latvia's Anti Corruption bureau elected to Parliament for first time. These issues also have implications for security and defence questions.

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Alexis de Pleshcoy

October 28, 20183:13 am

There are many forms of corruption. I respectfully correct Vesjvoda’s by removing Europe “evil bridges with ease North-South and East-West divides. It knows no borders, nor cares for national differences”. Unfortunately, it is difficult to subscribe to Conley’s perspective that democracies are different when it comes to corruption; Xi’s anticorruption campaign, targeting the very top of society shows that different political systems might combat it more efficiently, although this is also a complicated story.
Corruption is almost always accompanied by incompetent regulators, who could have stopped it before happening. The 2008 financial crisis was a catastrophic failure of regulators allowing CDO/CDS’s to infect the world’s financial system. The underlying securities were labeled AAA by ratings agencies who were paid to rate them, under the non-watchful eyes of Alan Greenspan. Greenspan has always been an exemplary civil servant, unfortunately too ideological for a technical job, an incompetent regulator who enabled borderline corruption, like tweaking mathematical models.
Greenspan at least has the excuse that the quants can hide flaws, but the EU regulators could have easily detected, just looking at input/output data that something is not right with Greece. The first tens of billions in, where is the output, the Greek companies of EU span challenging Samsung, LG, Mittal?
The same simple arithmetic of inputs/outputs should have been applied to ERDF’s. For 2007-2013, $201 billion, where are the EU companies leading in AI, quantum computing, even simple things like Apple consumer products? Where are the Huawei’s, Xiaomi’s? Why is it that the quantum radar was made in China and not in the EU? Same period, €76bn for the European Social Fund, and €70bn for the Cohesion Fund, and the EU doesn’t lead in PISA scores?
In the 1990’s the West had a choice: a Marshall plan for the former communist countries, or move everything to China (later India), in an MPS type structural move.
Looking at the numbers, it appears that the West was on a dual track, money was also sent to Central and Southern Europe.
Back in the 60’s South Korea was an underdeveloped agrarian society, devastated by war; back in the 80’s China was not far from that.
After 30 years of EU funds, what can be shown aside from consumption?
The EU must now add a 5th commandment: Thou shalt not steal EU funds.
The EU is the last resort for the killing fields called Europe, it shouldn’t fail because of corruption.

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